RIM To Miss Earnings Goals After Half A Billion In PlayBook And Outage Charges

RIM has announced that it will be taking over half a billion dollars in charges related to two major failures this fiscal year. First is the immense overproduction of the Playbook tablet, the writedown of which inventory amounted to $485M on its own, or $360M after tax. The second charge is related to the prolonged network outage in early October, though it’s unclear whether that money is directly related or being reserved for dealing with ongoing costs like lawsuits.

Sales of handsets and services were as forecasted, but a lack of growth must be inferred by their waning market share, and at any rate the sales weren’t enough to put RIM at their expected revenue of $5.3 billion for the upcoming quarter. Quarterly earnings are at a level with (low) predictions of around $1.20 per share, but yearly earnings will miss the expected $5.25 per share, and analysts are calling for as little as $3.50.

That enormous PlayBook charge really indicates how serious a misstep the device was. While there are plenty of happy PlayBook owners out there (especially after recent markdowns), the numbers are nowhere near what RIM must have expected, and sales have been less than half what they shipped. A bit of napkin math has the hundreds of thousands of unsold devices adding up to hundreds of millions in lost revenue, and then of course there are the many thousands of devices that sold at less than the expected price by hundreds of dollars each. Acer recently faced a glut of inventory and admitted its entire strategy needed to be revised. RIM has not shown much contrition despite serious reservations by shareholders analysts.

RIM co-CEO Mike Lazaridis demonstrated this lack of forthrightness in the earnings report:

RIM is committed to the BlackBerry PlayBook and believes the tablet market is still in its infancy… Early results from recent PlayBook promotions indicate a significant increase in demand across most channels.

October’s outage also affected RIM’s credibility. While even the best services can’t guarantee 100% uptime, the length and seriousness of the outage eroded RIM’s reputation as a reliable business solution. The PlayBook’s lack of enterprise chops and familiar BlackBerry services further contributed to a loss of faith.

RIM has had a bad year, and that’s putting it lightly. But they’re still nearly in line with their predicted earnings and they are, in fact, on the verge up a major product refresh with the new line of QNX/BBX-based BlackBerry devices and a major PlayBook update. A company that stumbles isn’t necessarily a company that falls, but RIM is running out of chances.